What’s Working in the Stock Market this Year?

The table below ranks the 24 Industry Groups in S&P 500 by their YTD performance. What is the best performing industry group YTD? Energy, the same industry group that was last year’s worst performer. I also see utilities, materials, and transportation stocks among this year’s big winners. All three were big losers last year.

How are last year’s big winners doing this year? Last year’s best performing industry groups included the retailing, software and services, and consumer services groups. All three are down YTD while the S&P 500 as a whole is in the green.

This reversal of fortunes illustrates the vital role that patience must play to achieve long-term investment success. This cannot be emphasized enough. Patience plays a leading role in the investment strategies of many the world’s most successful investors. Patience is at the heart of Warren Buffet’s strategy. He once described his favorite holding period for stocks as forever. So last year when rail stocks started selling off, it wasn’t at all surprising that Buffet held onto Berkshire’s Burlington Northern Santa Fe rail business when many other investors were rushing for the exits in rail stocks.

Impatient investors who allow fear and greed or euphoria and despair to guide their investment decisions often commit unforced errors that sabotage portfolio performance. You see this over and over in the performance numbers that Dalbar maintains on the mutual fund investors. Over the last 30 years, the average equity mutual fund investor lagged the broader market averages by over seven percentage points per year. That’s huge over a 30-year period. Measured in dollars on a $10,000 initial investment, you are talking about a loss in value of almost $200,000. Much of this lost value can be attributed to selling losers before they return to the winner’s circle and vice versa.

Savvy successful investors take a patient approach when evaluating portfolio positions. We would advise you to do the same.

Jeremy Jones, CFA

Jeremy Jones, CFA is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Jeremy is a contributing editor of youngresearch.com.